Millennials, the youngsters reaching young adulthood in the early 21st century, are the future of our country. It is estimated that more than 50 percent of India’s population is below 25 years of age. In my work as a financial advisor with many senior clients over the years, a common concern I have seen is that they worry about their children being careless about money, and not being aware of how to manage their finances. What exactly is the difference between this new generation of millennials and their parents?
In today’s rapidly changing world, there are countless distractions. It leads to difficulty in keeping focus on the important things in life.
Millennials often get caught in the trap of making the most out of their money and life in general. As mentioned above, their parents had fewer financial goals which just included retirement planning, buying a house, or their children's education. Their goals were few and specific and they did not resort to taking loans for funding luxury items. Most of them never purchased or constructed their first house while they were in their 20s, preferring to wait till they were in their late 30s or 40s. Most of them never owned a car or even if they did, it only came during their retirement phase.
Their travel spending was mostly restricted to visiting a close family member or travel within India. Spending money to travel to an exotic or foreign location was out of the question. They got married early, and medical, educational, or luxury expenses were much less than today. These truisms are applicable to most Indian middle-class families.
All the change that we see around us is a result of the environment and the exposure each generation has received. It’s often said that the new generation is extremely smart. My five-year-old son Kian knows how to download various games and apps on a mobile phone. The previous generations did not receive the same exposure in their childhood. But now, we have many grandparents who are very comfortable using social media and various communication tools like Facebook, WhatsApp and YouTube. They do it because they have been exposed to it now. The exposure to technology has an effect on all these generations.
Parents of millennials often complain that their children want the latest gadgets, branded clothes and foreign vacations. Let’s be reasonable with them. What used to be luxuries are very commonly seen now. For example, having an AC in the house earlier was considered to be a luxury, but nowadays, it is commonly seen in a lot of houses. The same goes for having a car. Cars were seen as a luxury item, but cars ranging Rs 5 lakh to Rs 15 lakh are very commonly seen around us. You may also find your grandparents telling stories about how they used to study under streetlights. But those times were different and it was a necessity at that time. It is no longer so. There is no denying the fact that they faced a lot of challenges, but at the same time, it is important to see that this generation has its own set of challenges, of a different sort.
The problem statement has changed 360°, because there is a huge overload of information. The problem is no longer about awareness, it is about excess awareness now. For example, a decade ago people were not very aware about mutual funds. Stock market investment also used to be treated like ‘satta’, i.e. speculation, but now there is ample awareness about why mutual funds and especially SIP mode of investing in mutual fund is very good. The problem now is deciding which schemes to invest in out of more than 1000 schemes available, which leads to confusion. In addition to this, with the way society functions now, the kind of exposure millennials receive makes them question the purpose of saving money, because life is short. So why not enjoy it and spend as you want?
The role of technology is also critical. WhatsApp can be used to share ‘Good Morning and Good Night’ messages on 50 different groups, or it can be put to productive use, like running your business. A large chunk of my own work communication happens through WhatsApp, and the same is true for many others. I believe that every new development, technological advancement, or new way of working should always be welcomed, but what we need to be careful with is how we are using them.
With the immense opportunities and information available, with countless avenues to spend and invest money, millennials need to set specific measurable financial goals similar to what their parents did. Learning to manage cash flows makes managing money simpler. The key is to be disciplined and patient and make the most of money. Technology can be used to help plan and manage money better.
The objective is to highlight the paradigm shift in the way money was perceived and managed earlier versus now. Being patient and diligent in using technology properly can go a long way in creating wealth for millennials. The idea is to be smarter with handling the impact of emotions on financial decisions, and understanding the importance of starting early, and starting slow. Millennials should follow their parents in terms of their simplicity, and how they manage their expenses. Make sure to follow the mantra of earn, save, and then spend in that order only.
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Rishabh Parakh is the founder and chief gardener of Money Plant Consultancy.